1911 Mrb 18Th Nov

Market Research Bulletin: Migration of flexible office space to city outskirts is creating a 'Flex Economy'

CONSTRUCTION

  • The latest ONS data shows that construction output rose by 0.6% (or £253m) in Q3 2019 compared to the previous quarter, partially reversing the decrease of 1.2% seen in Q2. Growth in Q3 was driven by a 1.4% rise in new work, offset slightly by a 0.8% fall in repair and maintenance. New work saw higher than expected increases in housing, commercial and industrial in the three months to September, but a slowdown in September itself:

UK Construction Output (Q-on-Q), Volume Seasonally Adjusted (Source: ONS)


  • A leaked early draft of the official review into HS2 has suggested that the Government should proceed with the full line from London to Leeds and Manchester, despite the potential for further cost increases. Instead, the report suggested that cost savings could be achieved by reducing the number of trains per hour from a maximum of 18 to 14. The report suggests that the bill could be cut by £4bn by asking private developers to contribute towards the cost of building stations, which are likely to attract housing, offices and retail development.
  • A report by Frost & Sullivan has found that the global market for modular and prefabricated buildings is set to be worth over £165bn globally by the middle of the next decade. The report said that growth would be boosted by an overall uptick in construction work as well as the potential time and cost savings when using offsite construction. Prathmesh Limaye, senior analyst at Frost & Sullivan, said:

“Prefabricated buildings are increasingly being perceived as sustainable solutions for construction projects due to a growing usage of materials, such as timber and aluminium composites, that are more energy efficient than concrete.”

Prathmesh Limaye, Frost & Sullivan
  • The combined value of contracts awarded to the top 50 contractors in October 2019 was £4.4bn across a total of 182 projects. According to Barbour ABI’s TOP 50 Contractor League Table, Fluor Limited took the top spot following the award of the £800m Fawley Oil Refinery upgrade works. A number of new entrants to this month’s league table have pushed some of the larger contractors such as Mace and Galliford Try out of the top 10 and into lower positions.
1911 Top50Contractors
  • Analysis conducted by independent economists at Development Economics on behalf of Regus, found that the increasing migration of flexible office space to the outskirts of major UK cities is creating a 'flex economy' that could contribute more than £12bn to local economies in the next decade. Businesses are increasingly basing employees outside of major metropolitan hubs in flex spaces, driven by cost-efficiencies, an ever-improving transport infrastructure and the rise of flexible working.
  • A report produced by the National Federation of Builders (NFB) has said that future governments will need to spend nearly £50bn a year on de-carbonising the UK’s housing stock, infrastructure and the power industry if the country is to meet its zero-carbon target by 2050. The report said that the sector, which is responsible for 47% of the UK’s carbon emissions and 61% of the country’s waste, would need to take a collaborative approach with the Government in order to:

“...bring together developments in skills, procurement, design, products and materials, transport and more.”

UK ECONOMY

  • The UK avoided a recession in Q3 2019, as GDP grew by 0.3% compared with the previous quarter. However the annual growth rate, which was 1% in the year to Q3 2019, was the slowest since 2010. The slower-than-expected economic growth in Q3 was the result of Brexit uncertainty, a weaker global economic outlook and weak stockpiling activity compared with that ahead of the March Brexit deadline.
  • The Bank of England (BoE) gave its strongest signal yet that it will be prepared to cut interest rates if the economy slows further. Although the BoE kept interest rates on hold at 0.75% in its latest meeting, it said growth had “slowed materially” in 2019, prompting two members of the monetary policy committee to vote for a rate cut. The BoE still expects growth to bottom out this year at an annual rate of 1%, rising to 1.6% in 2020, 1.8% in 2021 and 2.1% in 2022. Mark Carney said:

“That upturn in growth is underpinned by a judgement that the Brexit uncertainties facing businesses and households will decline gradually over the forecast period.”

Mark Carney, Bank of England
  • The jobs market has stuttered ahead of the December general election. In the three months to September, the number of people in employment dropped by 58,000 compared with the previous three months, marking the largest fall since summer 2015. Wage growth also cooled more than expected between July and September as the number of vacancies in the economy fell.
  • UK inflation fell to a three-year low in October as falling transport and energy prices pushed down growth rates. Prices last month were 1.5% higher than the same period last year, falling from 1.7% in September.
  • The Brexit party confirmed that it will not contest any of the 317 seats won by the Conservative party at the last UK general election. Nigel Farage’s Brexit party will contest just over 320 seats (all those constituencies not won by the Tories in mainland Britain at the last election). The move could split Labour-voting leave seats, providing a huge boost for Boris Johnson who is seeking a majority in parliament. Mr Farage, stating his objective was to secure Brexit and avoid the risk of a second EU referendum, said:

“We have to put country before party and take the fight to Labour.”

Nigel Farage

WORLD NEWS

  • Carbon emissions are on course to rise up until 2040 even if governments meet their existing environmental targets. The International Energy Agency (IEA) in its World Energy Outlook 2019 said that the impact of an expanding world economy and growing populations on energy demand would continue to outweigh the push into renewables and lower carbon technologies. The report said that rapid reduction in emissions would require “significantly more ambitious policy action” in favour of efficiency and clean energy technologies than those being planned.
  • Donald Trump has threatened to escalate the trade war with China saying that US tariffs on Chinese goods would be “raised very substantially” if no interim deal was reached with officials in Beijing. A tentative or “phase one” agreement was secured in October which would see some existing levies being rolled back. However the details are still being haggled over by US and Chinese officials.
  • The OECD has called for the introduction of a global minimum level of corporation tax – a proposal that aims to eliminate the advantages some companies enjoy by shifting profits around the world to minimise their tax bills. The OECD said:

“A minimum tax rate on all income reduces the incentive for taxpayers to engage in profit-shifting and establishes a floor for tax competition among jurisdictions.”

OECD
  • Germany may have avoided a technical recession as recent trade data indicated that German exports rose by 4.6% in September. The export-focused economy has been hit by the US-China trade war, uncertainty over Brexit and a sharp decline in the car industry, which has been disrupted by new emissions rules and the shift to electric vehicles.


COMMODITIES & MATERIALS

  • Chinese industrial conglomerate Jingye has bought British Steel in a deal that ends six months of uncertainty and instability. The deal, which is subject to regulatory approval, is expected to include some degree of state support and risk guarantees as it warned that costs would have to be cut. The Chinese group plans to invest £1.2bn in the steelmaker over the next decade to improve plant and machinery, as well as boost energy efficiency to place operations on a more competitive and sustainable footing.
  • National petroleum and natural gas company Saudi Aramco has published its long-awaited prospectus for its initial public offering. The prospectus shows a near 30% drop in its net income in Q3 2019 from a year earlier (to $21.3bn), squeezed by the impact of the attacks at its refinery and of lower crude prices. The prospectus also outlines concerns that climate change could reduce global demand for hydrocarbons and that research commissioned by the company forecasts that oil demand will peak in 2035.
  • US copper producer Freeport-McMoran hopes to increase annual output by 90,000 tonnes (approximately 5%) by introducing machine learning technology. The machine learning model, which Freeport developed with McKinsey, the consultancy, uses data from sensors around the mine and suggests new ways to improve the performance of its crushers and processing mills.
  • Landsec has launched a new sustainability strategy with the aim of being a net zero carbon business by 2030. The strategy has been designed to align the REIT with an externally-approved science-based carbon reduction target of keeping global warming to 1.5 degrees. The company plans to reduce the energy used to run its assets by using renewable power where possible as well as less carbon intensive materials in construction.


ANNOUNCEMENTS IN THE CONSTRUCTION PRESS

  • After posting a £404m pre-tax loss for the six months to the end of September, British Land has said that it plans to cut its exposure to the retail sector to around a third of its portfolio as it moves forward with plans to become a mixed-use specialist. British Land will reduce its retail assets from 41% of its portfolio to between 30-35% in the medium term and noted that the retail sector remained tough, with several of its occupiers going bust or looking to strike cheaper rent deals.
  • Landsec plans to push ahead with substantial London property developments despite “unsettled market conditions”. The company recorded a £147m loss for the six months to September 2019, down from a £42m profit a year earlier, as £368m was wiped off the value of its portfolio. Despite this Landsec has workers on site at four London schemes totalling 1m sq ft of new buildings, part of a £3bn programme of potential developments. Robert Noel, chief executive, believes that its development programme will be “well timed”.
  • Selfridges Group is about to make its first foray into flexible working after signing a management agreement with operator Fora at 388-396 Oxford Street – a property next to its flagship department store. Fora will occupy all six floors after the 1950s block has been refurbished, earmarking the space for a mix of shared and private workspaces as well as two storeys of communal and event space.
  • Everton Football Club will submit detailed plans for its new 52,000 seat stadium and the redevelopment of its former home before the end of the year, after a public consultation showed overwhelming support for the proposals. Analysis of the consultation data revealed that 96% of the 43,039 respondents want 'The People's Project' to continue and that 8/10 Evertonians also support progression of the plans. G&T is providing Project Management services on the scheme.
  • Crossrail’s opening has been delayed until 2021 and could go another £650m over its budget. Crossrail Ltd chief executive Mark Wild said cost of the project could reach £18.25bn, more than £2bn more than the original budget. Originally due to open in December 2018, the Elizabeth line is being delayed to allow more time for testing. A TfL spokesman said:

"It is only over the last year that the new Crossrail leadership has established the full complexity of finishing the software development and signalling systems, while getting the necessary safety approvals to complete the railway.”

TfL
  • Laing O’Rourke has urged clients, particularly public sector clients, to settle their bills more quickly if tier 1 contractors are to avoid running out of cash. The firm, which recently improved the average amount of time it takes to pay its suppliers from 52 days to 34 days, said that cashflow is particularly sensitive to the length of time taken to agree and settle change variations. The firm also noted that cashflow difficulties arising as a result of the current payment culture have been exacerbated by UK banks reducing their lending to tier 1 firms due to a “loss of appetite for the sector”. Consequently, Laing O’Rourke said:

“All parties involved in the sector must collaborate to provide a modern approach to payments and providing adequate working capital to avoid the current hand to mouth trickle down of liquidity.”

Laing O'Rourke
  • The City of London has granted planning permission for a 24,000m² office development above the Liverpool Street Crossrail station. The building, which will replace a six-storey office building, will comprise 10 floors of office space, ground floor retail space as well as two levels of partial basement. The block will also include a seven-storey ventilation shaft for Crossrail and an emergency exit for the new rail line on its Blomfield Street section. G&T is providing Cost Management and Life Cycle Costing services on the scheme.

If you have any questions or have some news/information to contribute to the bulletin, please contact Michael Urie, or Nick Rowe

Click here if you would like to download a copy of this report